North Korea Gets Boost as Workers Flood Into Gaeseong: Economy

South Korean owners and workers wait to access the Gaeseong joint industrial complex in North Korea, at the customs, immigration and quarantine office in Paju, South Korea on Sept. 16, 2013. Photographer: Chung Sung-Jun/Getty Images

Sept. 16 (Bloomberg) -- North and South Korea reopened
their jointly run industrial complex today, reviving a lone
symbol of economic cooperation five months after it was
shuttered amid the North’s threats of preemptive nuclear attack.

Thousands of North Korean workers were returning to the
Gaeseong zone, located north of the border. From the South, more
than 500 trucks, vans and cars formed a bottleneck at a
checkpoint at the heavily armed border, carrying supplies and
company executives to the site to restart factories. More than
120 companies operate at Gaeseong, including watchmaker Romanson
Co., and Shinwon Corp., an apparel maker.

“My heart’s in a flutter now that Gaeseong is
restarting,” Lee Mun Yong, who works for South Korean cellular
phone parts maker Jaeyoung Solutec Co. Ltd., said near the
checkpoint. “North Korean workers are looking both relieved to
have their jobs back and determined to work harder. The past
five months has been a time of crisis for them.”

North Korea pulled its 53,000 workers out of Gaeseong in
April, capping months of tensions after it conducted a third
nuclear test in February and threatened preemptive attacks when
the United Nations stepped up sanctions and the U.S. and South
Korea held annual military drills. Gaeseong has provided Kim
Jong Un’s regime with much-needed hard currency and been a
source of cheap labor for South Korean companies.

“It would not have been easy for North Korea to give up
Gaeseong because it’s a valuable source of hard currency,” Choi
Chang Ryul, a professor of liberal arts at Yong In University
near Seoul and a political commentator, said by phone.

Seeking Dollars

At the border today, a line of people formed at a currency
exchange booth run by Woori Bank, changing South Korean won for
U.S. dollars, the only currency that can be used at Gaeseong.
Other South Korean workers shook hands and laughed as they
chatted in groups inside the transit office.

“I’m glad I’m finally returning after so many twists and
turns,” said Shin Han Yong, president of Shinhan Trading, which
produces fishing nets at Gaeseong. “We didn’t get to fish at
all this spring and summer, so to speak. But I held on to the
hope that Gaeseong would open again.”

South Korea’s Kospi index of stocks rose 0.6 percent as of
11:50 a.m. local time.

Gross domestic product in North Korea increased 1.3 percent
in 2012 after a 0.8 percent rise in 2011, according to
calculations released by South Korea’s central bank in July. The
North’s economy has contracted in four of the last seven years,
the Bank of Korea data show.

Lagging South

North Korea’s per capita income was about 1.37 million won
($1,270) last year, or one-nineteenth of South Korea’s,
according to the BOK estimates. Foreign trade, excluding
commerce with the South, rose 7.1 percent to $6.8 billion, with
exports increasing 3.3 percent to $2.9 billion and imports
rising 10.2 percent to $3.9 billion, the BOK said.

The agreement to reopen Gaeseong paved the way for a
separate accord to revive reunions of families separated by the
Korean War. The next round will be held at a mountain resort in
North Korea between Sept. 25-30. South Korean tours to the Mount
Geumgang resort on the eastern coast were another symbol of
detente before being halted in 2008 when a North Korean guard
shot and killed a South Korean visitor.

Relations between the Koreas have improved in recent weeks,
even as international concerns mount that the North may have
reactivated its 5-megawatt nuclear reactor capable of producing
one bomb’s worth of plutonium every year.

Nuclear Reactor

The U.S.-Korea Institute at Johns Hopkins University’s
School of Advanced International Studies said Sept. 12 that
satellite imagery taken Aug. 31 shows white steam rising from a
facility powered by the reactor at Yongbyon, north of Pyongyang.

That reactor was mothballed under a 2007 agreement
involving the two Koreas, the U.S., China, Japan and Russia.
North Korea officially quit the six-party talks, which aimed to
offer it aid in return for giving up its nuclear ambitions, in
2009 before conducting its second nuclear test.

In early August, the Washington-based Institute for Science
and International Security said the North had doubled the size
of its uranium-enrichment facility at Yongbyon. Both plutonium
and uranium can be sources of fuel for nuclear bombs.

Elsewhere in Asia today, China’s central bank set the
yuan’s reference rate at 6.1554 per dollar, the highest level
since a peg to the greenback ended in 2005. Governor Zhou
Xiaochuan said that the nation’s main economic indicators are
within in a “reasonable range,” in a Qiushi magazine article
posted on the People’s Bank of China website.

Summers’ Exit

Across Asia, analysts and officials were assessing
implications for the region from Lawrence Summers withdrawing
from the race to be the next chairman of the U.S. Federal
Reserve.

Summers was perceived as being less in favor of
quantitative easing than Janet Yellen, another candidate to
replace Ben S. Bernanke when his term ends in January, Mitul
Kotecha, the global head of currency strategy in Hong Kong at
Credit Agricole SA, wrote in a research note.

Inflation data are due today in India and the euro region.
In the U.S., industrial production grew 0.4 percent in August
from the previous month after stalling in July, according to the
median forecast in a Bloomberg survey ahead of Fed data today.